AUD/USD gains some ground post NFPs losses, eyes on Fed, CPI

June 10, 2024 8:45 pm

  • AUD/USD rebounded on Monday as sellers took a breather.
  • All eyes are now on Wednesday’s session where the US releases inflation figures and the Fed makes its interest rate decision.
  • There won’t be any economic highlights in Monday’s session.

On Monday, the AUD/USD pair experienced a slight rebound toward the 0.6605 area as sellers took profits after Friday’s sharp downward movements. This week will be pivotal as the Federal Reserve (Fed) meets on Wednesday, the same day when the US releases inflation data from May.

On the Australian side, economic activity is seeing some signs of weakness, but the Reserve Bank of Australia (RBA) is expected to be the last G10 country central bank to cut rates as it awaits further evidence of inflation coming down. On the US side, the economic outlook remains strong after the stellar Nonfarm Payrolls (NFP) report on Friday, which demonstrated a strong labor market.

Daily Digest Market Movers: AUD/USD faces pressure as traders await CPI and Fed decision

  • On the US side, markets await Consumer Price Index (CPI) data from May to be released on Wednesday
  • Federal Reserve (Fed) is also meeting on Wednesday, and it’s expected to hold rates at 5.5%. Fresh economic projections will also be watched
  • On the RBA’s side, it remains focused on curbing inflation despite signs of slowing growth
  • Market participants are closely monitoring upcoming economic indicators and RBA statements for clues on the AUD/USD pair’s direction

Technical analysis: AUD/USD maintains support despite retracement

Following Friday’s drop of 1.20%, the Relative Strength Index (RSI) stands below 50, supporting the bearish sentiment, while the Moving Average Convergence Divergence (MACD) prints red bars, indicating growing selling pressure.

However, the positive outlook remains unchanged as the pair holds above the 100 and 200-day SMAs at around 0.6550.

Australian Dollar FAQs

One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.

The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.

China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.

Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.

The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.

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